Failure to Meet Irreparable Harm Test Sinks Both a Non-Solicit and Non-Compete Clause

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  • September 8, 2012

Failure to Meet Irreparable Harm Test Sinks Both a Non-Solicit and Non-Compete Clause

As predicted earlier in this space, the British Columbia Court of Appeal’s decision inEdward Jones v. Voldeng, 2012 BCCA 295, is making it very difficult to enforce a non-solicit agreement in B.C. on an interim basis pending trial.

In Hub International v. Redcliffe, 2012 BCSC 1280, one of the first decisions to applyEdward Jones, the B.C. Supreme Court refused to enforce a restrictive covenant prior to trial, even though it found there was a strong prima facie case that the provision was enforceable and that the defendant was in breach of it.

The court relied on the decision in Edward Jones to hold that damages should be ascertainable at trial and hence there was no need to enforce the restrictive covenant on an interim basis.

Interestingly, the court characterized the restrictive covenant at issue as a non-solicitation clause and relied on the finding in Edward Jones that damages are more readily ascertainable for breach of non-solicitation clauses than for non-competition clauses.

But from the court’s description of the clause, it appears it was actually both a non-solicitation and non-compete covenant. While the court did not actually quote from the clause, it stated that it:

“…provided a prohibition against soliciting or doing insurance-related business with clients or prospective clients of Hub and Redcliffe Investments. For the former, the period of restriction was 12 months following termination of employment and for the latter 24 months.”

(at para. 4, emphasis added)

The portion of the covenant preventing the defendant from “doing insurance-related business” with his former employer’s clients is surely a non-compete clause, not a non-solicit provision. A former client could approach the defendant without him soliciting it, yet the defendant would be prevented from doing business with the client. That is a form of a non-compete provision.

The distinction is important, because in Edward Jones the Court of Appeal held that irreparable harm may more readily be found in the case of apparent breach of a non-compete agreement than in the case of a breach of a non-solicit. (I’ve previously written that this distinction is questionable, but nonetheless this is now the law in B.C.) Yet the court in Hub International appears not to have made this distinction and held that the entire clause was unenforceable because the plaintiff could not show irreparable harm.